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LONDON (Reuters) - U.S. bank Citigroup on Friday denied any improper activity by its traders after the bank confirmed its gas deals were among those that prompted investigations by Britain's financial and energy regulators.

The Financial Services Authority (FSA) and energy regulator Ofgem said last month they were investigating six gas trades following allegations made by a whistleblower that dealers had manipulated wholesale prices on Europe's biggest gas market.

Citigroup conducted two of the six deals on September 28 which priced gas at 58 pence a therm, a source at the bank said. The price was below other deals earlier in the day and later. The bank denied any impropriety.

"Citi's activity in the natural gas market on September 28 was related to client activity, and all Citi trades were completed at levels consistent with the context of the market at the time they were executed," a bank spokesman said.

The FSA declined to comment.

The source added that Citi simply sought to hedge its positions at the prevailing cost of gas, which at the time had fallen sharply to 58 pence/therm.

Citi's commodity trading desk is headquartered in London.

Whistleblower Seth Freedman and his employers at price reporting agency ICIS Heren separately alerted regulators to unusual trading activity during a crucial period at 1630 p.m. London time, when the agency sets the price of gas.

Both parties raised concerns that six gas trades done at 58 pence a therm at 1630 p.m. appeared too low, given other trades were around 58.5 pence/therm, prompting allegations by Freedman that the price was being manipulated.

The source added that Citi did not initiate trading at 58 pence/therm, adding that its two trades were sandwiched between the six reported.

In its daily report on September 28, ICIS Heren set the next-working day gas price at 58.25 pence/therm. Rival agencies Argus and Platts put the price at 58.5 pence/therm and 59.1 pence/therm, respectively.

ICIS Heren is the leading price reporting agency that aims to provide energy company clients with a transparent, daily price of wholesale gas used in contracts for billions of pounds worth of supply deals.

Energy information services Platts and Argus also provide prices in the gas markets but their prices are more commonly used in cash oil market contracts.

ICIS Heren price reporters go about setting the wholesale cost of gas by telephoning traders and collecting data during the peak trading window for gas at around 4.30 p.m. London time, known as the market-on-close assessment.

High trading volumes in this period are deemed to provide the best snapshot of gas prices as multiple sellers and buyers strike deals.

Some traders have criticised the approach for focusing on a narrow assessment window that they say invites manipulation by players that want a higher or lower price to suit deals related to the benchmark price.